Enter Your E-mail

One of my grandmother’s favourite sayings (particularly on the rare occasion she beat my grandfather at a game of draughts!) was: “It’s no good getting old if you don’t get artful”. And of course she was right – we all pick up a few tricks and skills throughout our lives which serve us well. Lessons are learned along the way.

But when it comes to tax, precisely the reverse is true. Throughout our working lives, most of us in employment are shielded to a large degree by Pay As You Earn. Income Tax (and national insurance) is taken off our wages automatically and many of us have little or no contact with HMRC at all. When we come to retire, everything changes and we are completely ill-prepared for what happens next.

We are expected to understand the multiple PAYE codes that often come flooding through our letterbox for our various sources of income – pensions and perhaps part time work. How should we know that our state pension, whilst being taxable income, does not have PAYE applied to it in the same way as any other pension? And that instead, tax on it might be collected via an adjustment to another PAYE code or we might even have to fill in a tax return each year?

“Really?” we say. “I thought only self-employed people had to complete tax returns!”

Since its earliest days, LITRG has been voicing these growing concerns – from our first report in 1998 right up to today. Our latest report Banks, Building Societies, HMRC and Their Non-Taxpaying Customers - A Plea for Better Service highlights the difficulties for low-income savers (many of whom are pensioners) in determining whether they can apply for savings interest to be received without deduction of tax at source.

We therefore very much welcome the OTS’s final report in its Review of Pensioner Taxation, which echoes many of our past recommendations. Our work has shown that pensioners on low incomes do need far more support than they are currently getting to navigate what is for them an increasingly complex system.

We strongly support the OTS’s recommendation of a ‘DWP60’ – information about taxable state pension and other benefits to be sent to pensioners at the tax year end by the DWP. Coupled with a single notice of PAYE coding instead of the multiple papers that pensioners currently receive, this should greatly improve people’s understanding of how their pensions are taxed or at least go some considerable way to a better understanding. And give them a better chance of spotting errors.

The OTS’s job to look at pensioner taxation was challenging, given that simplification often means creating some winners and some losers. But it is important to recognise that some reliefs and allowances – for example the 10% savings rate and blind person’s allowance – fail to benefit those who most need help and often go unclaimed by those who are entitled to them. Change could therefore be for the better, but only if the existing reliefs are not abolished without the savings being reinvested to provide better and more targeted support.

Kelly is a volunteer adviser with Tax Help for Older People and has contributed to the Office of Tax Simplification’s two reports on pensioner taxation.